Last year was a transformational one for ONEOK (NYSE:OKE) after it acquired its master limited partnership (MLP) in a $17.2 billion deal. That transaction, along with an improvement in energy market conditions, fueled steady improvements in the company's finances and growth prospects. However, as good as last year was, 2018 is setting up to be even better.

That's apparent in the pipeline company's recently unveiled guidance, which envisions a big uptick in volumes that should fuel an equally impressive boost to its bottom line.

A natural gas well with pipelines at sunset.

Image source: Getty Images.

Filling up the pipes

For 2018, ONEOK expects to produce $1.615 billion to $1.815 billion of distributable cash flow (DFC), which is money the company could pay out to investors. That's up from guidance that DCF would be between $1.28 billion to $1.44 billion in 2017, an increase of 26% at the midpoint of both ranges. Fueling that uptick in cash flow will be volume growth across the company's 38,000-mile pipeline system due to "sustained producer drilling activity and increased drilling efficiencies, combined with increased demand for ethane from petrochemical facilities and exports," according to CEO Terry Spencer.

Higher oil prices will be the main driver of the improvement in drilling activities this year because producers will have more cash to complete additional wells, especially in places like the STACK shale play of Oklahoma. Meanwhile, demand for natural gas liquids (NGLs) is expected to rise due to recently completed infrastructure projects along the Gulf Coast. For example, Enterprise Products Partners (NYSE:EPD) recently built the largest ethane export facility of its kind in Houston. The company was exporting 135,000 barrels per day (BPD) from that terminal during the fourth quarter, but it has contracts in place that could see it ship out up to 200,000 BPD this year.

To put that uptick into perspective, ONEOK expects ethane volumes across its systems to rise 70,000 BPD this year, which alone would result in a $100 million increase in earnings. In addition to rising exports, Enterprise is in the process of completing a petrochemical plant that will consume propane while Chevron (NYSE:CVX) and Phillips 66 (NYSE:PSX) recently finished a $6 billion ethane-fueled facility, which will help spur demand for these NGLs.

A gas pipeline under construction with a cloudy sky above.

Image source: Getty Images.

Much more to come

Anticipated volume growth in 2018 will mainly fill up the capacity of the company's existing network of pipelines and processing facilities, enabling the company to make more money from those assets. However, according to Spencer:

... as we continue to bring new volumes onto our systems, we also expect to announce additional capital investments to address the current and future needs of our customers by continuing to expand our extensive 38,000-mile integrated network of natural gas and NGL pipelines.

Some of those expansions are already on the way. For example, the company and a joint venture partner are in the process of expanding an LPG pipeline in West Texas, while ONEOK is expanding an NGL pipeline out of the STACK play, both of which should enter service later this year. Meanwhile, it has a major NGL pipeline coming out of North Dakota that should be complete at the end of 2019.

Overall, ONEOK has announced nearly $1.9 billion of investments since last June, which should drive growth over the next two years. That said, the company has another $2 billion of potential capital projects in the late stages of development that it will announce as soon as it has secured enough customer contracts to back those expansions. Because of that increased visibility, the company remains confident that it can deliver 9% to 11% annual dividend growth through 2021 while still maintaining a conservative 1.2 times dividend coverage ratio.

A great dividend growth stock for the long term

ONEOK's guidance shows that the energy sector is finally starting to get back up on its feet after a long downturn. That's excellent news for the company because it will generate more cash this year as it transports and processes higher volumes, giving it more money to return to investors. Meanwhile, with visible expansions on the way, it means the company's already generous 5.1%-yielding payout has much further to go, which is why this pipeline stock is one income investors should consider owning for the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.